Group sale: Selling an apartment block to a developer

By Jarrod McCabe

We’ve spoken often about the importance of land value as a component of property investment. 

With houses, it’s a given. With apartments, the right property in the right location still carries meaningful land content. 

But there comes a point – particularly with older apartment buildings – where the underlying land value starts to exceed the value of the improvements, and even the combined value of the individual apartments within the block.

This is something we’ve been seeing more frequently across middle-ring Melbourne, where ageing buildings without heritage or development overlays are attracting developer interest. 

Selling an entire block to a developer is a very different proposition from a standard property sale. It involves more parties, more complexity and more potential for things to go wrong. 

Here are the key considerations owners need to work through before embarking on the process.

Determine the highest and best use

This is the threshold question, and it will determine whether the process is worth pursuing at all. You need to establish whether the total value of the property as a single site is greater than the sum of the individual apartments – and not just by a small margin. 

The gap needs to be considerable, because the process itself involves significant cost, complexity and inconvenience for all parties. If the numbers don’t justify it clearly, it’s not worth proceeding.

Three valuation scenarios

There are typically three options when assessing the highest and best use of this type of property. 

The first is that the land value has exceeded the value of the improvements – the building has depreciated to a point where the site itself is the primary asset. This is the scenario you need if a developer sale is going to work, because it creates genuine financial incentive for all parties.

The second is a sale to a passive investor – a single buyer who acquires the entire block to hold for rental income and future upside. The problem here is that a passive investor will typically want a bulk discount, paying less than the combined value of the individual apartments to justify the outlay. That rarely works in the owners’ favour.

The third scenario is that the sum of the individual apartments remains the highest value. In that case, owners are better off selling independently. Only when the land value clearly exceeds the other two options does the group sale process become viable.

Understand owner motivations

Investors vs. owner-occupiers

Any multi-unit block will contain owners at different stages and with different motivations. Investors tend to be financially driven – if you can demonstrate a clear return, engagement is usually straightforward. 

Owner-occupiers can be more resistant, particularly those who have lived in the building for a long time. For them, the value is not purely financial; it’s about lifestyle, familiarity and the community they’ve built. The key is showing that the sale could improve their position – financially and in terms of their standard of living.

Length of ownership matters

Owners who have held for a longer period are generally more open to the conversation. They’ve built equity and may be looking at retirement or a next step. 

Recent purchasers are tougher – they’ve just absorbed stamp duty and transaction costs, so their profit margins are far tighter. They’ll need a significantly stronger financial incentive to consider selling again so soon.

Secure unanimous agreement

Unlike other owners’ corporation decisions, which may require only a majority or a high proportion of agreement, selling an entire block requires 100 per cent consent from all owners. One holdout can stop the process entirely. 

This is distinct from New South Wales, where legislation introduced in 2016 allows a 75 per cent majority to compel a sale – a form of private compulsory acquisition, though it hasn’t led to a significant number of transactions in practice. 

Victoria has no equivalent mechanism, so unanimity is essential. It’s worth gauging appetite early before investing heavily in the process.

Apportion value fairly

How the sale price is divided among owners is one of the most sensitive aspects of the process. 

The most common and generally fairest method is through unit entitlements, as stated on the certificate of title. 

Each apartment – and in some cases, car spaces and storage cages – is assigned an entitlement that reflects its proportion of the overall development. If you hold 10 per cent of the total entitlements, you receive 10 per cent of the sale price.

Why unit entitlements work

Disagreements can arise when owners feel their apartment warrants a greater share – perhaps because of a superior position within the block, a recent renovation, or a courtyard with a licence agreement. 

But the key consideration is who the buyer is. If the buyer is a developer whose intention is to demolish and rebuild, the condition or presentation of individual apartments is irrelevant. The developer is buying the site, not the fitout. In that context, unit entitlements are the most equitable basis for apportionment.

Set a minimum price

Every owner will have a different number in mind, shaped by their own motivations and circumstances. The critical step is anchoring everyone to a formally agreed minimum sale price before going to market. This needs to be documented in a binding agreement among all owners.

Without it, you risk one party shifting the goalposts at the eleventh hour. The group may have agreed on a figure of, say, one million dollars. But come auction day or the close of expressions of interest, a family member gets in someone’s ear, and suddenly one owner won’t sign unless the price is ten per cent higher. 

At that point, everyone else has invested time, money and legal costs only to have the process derailed. A formal agreement holds everyone accountable and ensures that if the minimum is met, the sale can proceed.

Get independent advice

This is not a process that should be driven by a single owner with a vested interest, or by the selling agent whose focus is rightly on the transaction itself. Owners as a group benefit from independent advice – someone with no financial stake in the outcome who can guide the collective through each of these steps, provide strategic counsel, and ensure every owner’s interests are heard.

Having that independent advisor allows the real estate agent to concentrate on what they do best – managing the sale process and dealing with buyers – while the advisor focuses on alignment, communication and decision-making across the vendor group. In our experience, the transactions that run smoothly are those where this groundwork is done properly upfront, so that by the time agents are appointed and the campaign begins, everyone is on the same page.

Take home message

Selling an apartment block to a developer can deliver outstanding financial outcomes for all owners – but only if the process is set up correctly from the start. 

Determine whether the land value genuinely justifies the exercise, understand the motivations of every owner in the block, secure unanimous agreement early, settle on a fair method of apportioning value, lock in a minimum price, and engage independent advice to hold the process together.

Get these foundations right, and you give yourself every chance of a successful result. Skip them, and one misstep can unravel the entire exercise.

Listen to Jarrod’s podcast: